Employers often ask employees to designate the amount of tax withholdings for paychecks. Occasionally, employees will fail to withhold a sufficient amount in the eyes of the IRS. The IRS will then send a "lock-in" letter on the amount to be withheld. What's an employer to do?
Withholdings
Four taxes must be withheld from employee paychecks ? Medicare, Social Security, Federal Income and State Income tax. The Medicare tax is set at roughly 1.5 percent of salary while social security is set at 6.2 percent. The withholding for federal and state income tax, however, is subject to adjustments made by employees. The amount of tax required to be withheld by the IRS requires a calculation beyond the scope of this article, but you can look to the "Employer's Tax Guide" on the IRS web site.
If an employee claims excessive deductions that result in insufficient withholdings, the IRS may respond. The typical response is to send an employer a "lock-in" letter.
The lock-in letter tells the employer to increase the amount of withholding tax of the employee. The IRS will actually specify the maximum number of withholding exemptions the employee can claim. The more exemptions claimed, the less tax withheld in each paycheck. The IRS will also send a copy of the correspondence to the employee.
As an employer, you must comply with the IRS lock-in letter. The IRS will designate a specific compliance date. Better to have died a small child than fail to comply with the letter. Failure to comply will result in the tax liability transferring from the employee to the employer. The employer can also expect the unwanted attention of IRS auditors. In short, make absolutely sure you comply with the lock-in letter.
What should you do if you receive a lock-in letter, but the employee no longer works for you? You must send a written response to the IRS office listed in the correspondence. The response must state the employee no longer works for you and the last date of employment to the best of your knowledge.
What should you do if the employee refuses to comply with the lock-in letter? You must comply with the lock-in letter. The employee's wish is irrelevant and you have no discretion in the matter. Instead, the employee should be told to contact the IRS directly and request a modification to the lock-in letter.
Lock-in letters can cause stress in employee-employer relationships. Unfortunately, there isn't much you can do about.
Richard Chapo is with http://www.businesstaxrecovery.com - recovering overpaid taxes for small businesses. Visit our article section - http://www.businesstaxrecovery.com - to read more tax articles.
Alexis limo rentals ..As teachers and students head back to school following a... Read More
Does this scene sound familiar? It's April 7. You haven't... Read More
To tax or not to tax - this question could... Read More
When buying a business, how the "purchase price" is made... Read More
Most people trying to make a crust online (or offline... Read More
Do you realize that some tax forms ask you to... Read More
We need real tax reform and we need it now.... Read More
The 100 year old investment-banking firm of... Read More
The Internal Revenue Service is reporting that the difference between... Read More
It may not be high on the list of wedding... Read More
The Sarbanes-Oxley Act, also called the Public Company Accounting Reform... Read More
Once a year Canadian taxpayers are required, by law, to... Read More
You're at your office, or home, and the doorbell rings... Read More
As a small business owner, it's wise to familiarize yourself... Read More
While there are many equally valid reasons to incorporate, saving... Read More
Misconceptions, misinterpretations and just plain "untruths" are floating about income... Read More
Choosing the right tax preparer for your business is a... Read More
The end of tax filing extensions is quickly approaching. What... Read More
It's a major fear for most Americans: A notice from... Read More
Whether helping the kids with a down payment on their... Read More
Small Businesses Filing Amended Federal Tax Returns to... Read More
Just image, you are a small manufacturing company, business has... Read More
Hit a big one? With more and more gambling establishments,... Read More
Anyone who is closely related to an accountant knows that... Read More
Running a home based business reaps many wonderful tax deductions... Read More
car service from Midway Alsip ..1812The first attempt to impose an income tax on America... Read More
The U.S. Department of Agriculture estimates that it costs nearly... Read More
Whether helping the kids with a down payment on their... Read More
Assume a buyer in Pakistan downloads software from the Internet... Read More
The federal tax code is complex. This complexity generally arises... Read More
Each year, the IRS lists various scams taxpayers get caught... Read More
If your like many, you don't always understand what people... Read More
We all love to criticize the IRS, don't we? And... Read More
"Deducting Meals and Entertainment"O.K. You've been working really hard on... Read More
If you have recently started an Internet or home business,... Read More
For many business owners the answer to this quandary is... Read More
The Sarbanes-Oxley Act, also called the Public Company Accounting Reform... Read More
A Federal Tax Lien (FTL) is a legal instrument that... Read More
The Internal Revenue Service is reporting that the difference between... Read More
As tax time approaches, many home-based business owners begin completing... Read More
Millions of people file tax return extensions every year. The... Read More
Many Americans believe that an IRS debt is a debt... Read More
Once a year Canadian taxpayers are required, by law, to... Read More
One way to maximize your business profits is by reducing... Read More
Strategic planning throughout the year results in a minimal tax... Read More
In elementary school, kids come up with creative excuses why... Read More
As your business grows, you are going to need help.... Read More
If you have employees, you are responsible for paying a... Read More
The end of tax filing extensions is quickly approaching. What... Read More
One of the most important, but least understood or appreciated... Read More
Tax |